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"Family Tax Planning"- More Income & Less Taxes

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One of the common methods adopted by taxpayers to lower the incidence of income tax is by means of legal transfer of their sources of income to as many relatives as possible, so that each unit of the family enjoys the basic personal income tax exemption limit,
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By proper planning it is possible to have a separate income tax file for both the husband as well as the wife. Under the Income Tax Law both husband as well as the wife would be entitled to have their separate sources of income, separate funds of their own and so consequently separate income tax files for both of them would be a reality.

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Any income received by the minor children is added or clubbed with the income of the father or mother of such child, who has higher income. This clubbing of income takes place irrespective of the fact that the father or mother of the minor child has or has not made any gift to such minor child.

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As discussed above, where the case of a minor falls within the exceptions as provided in the proviso to Section 64(1A), that is, where a minor is disabled or has income derived by virtue of his special skill, talent, etc. then the income of the minor is not clubbable with the income of his parent.

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Yes, it is true that if you are married then you are able to make a substantial saving of income tax by just resorting to set up two separate independent income tax files for both the husband as well as the wife.

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All your major children are as solid as a rock to help you save your income tax. After 1st. October 1998 the provisions relating to gift- tax have ceased to exist. Now you are free to gift away your money to your major children without attracting the payment of gift tax.

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Might sound incredible to most of the readers but the fact is that your own parents as well as your own in-laws can become legal tools of tax planning for you and your family.

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One should not be that selfish so as to think of saving income-tax during the tenure of one’s own life but when we talk of holistic tax planning, then surely we should so plan our tax matters that even when we cease to exist, our successors to the estate are able to save income tax in the years ahead.

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Under Section 64 (1) (a) of the IT Act, if the father-in-law or mother-in-law makes any gift to his or her daughter-in-law, i.e., their son’s wife, on or after 1 June 1973, the income arising to the daughter-in-law in respect of the gifts so made would be liable to be included in the total income of the father-in-law or the mother-in-law making the gift.

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In the matter of tax planning it is absolutely necessary for an individual to so plan his tax affairs that the income belonging to his or her spouse or minor child or grandchild, etc., is not included in his or her total income.

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The concept of joint family is cracking down. Nuclear family concept is on a rise. Under the present scenario for a nuclear family there is imperative need of tax planning so as to cut down taxes.

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Working couples who have no children are known as DINKs (Double Income No Kids). Substantial tax planning is needed for them even in the initial years of their married life.

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You now need to be a little careful when receiving a gift from people who are not your relatives. A gift received on or after 1 September 2004 from non-relatives would be treated as your income from other sources and taxed accordingly, unless the gifts received are upto `50,000. The gift from relatives can be received of any quantum.

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Yes, it is legally possible to have a trust for an unborn person like a would-be-son, would-be wife of a son or a grandson, etc., in such a manner that the said trust becomes assessable at the normal slab rates of income tax applicable to an association of persons (AOP)

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The income of a private discretionary trust for the benefit of the relatives, etc., of the settlor is now normally liable to tax under Section 164(1) of the IT Act at the maximum rate of income tax for AY 2012-2013 or even for the AY 2013-2014.

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Under the provisions of Section 1 64A of the IT Act, any income, received by a trustee on behalf of or the benefit of any person under an oral trust is chargeable to income tax at the maximum marginal rate applicable to an individual.

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Substantial tax saving is possible by adopting a holistic, family-wide tax planning. Do remember that your legally tax saved today is your future investment.

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